One of the convenient features of mutual funds is their liquidity. Most open-ended schemes allow investors to submit a request to withdraw funds on any business day. This can be useful when a financial goal is due, an urgent expense arises or the portfolio needs to be rebalanced.
This process of withdrawing part or all of an investment is known as mutual fund redemption. Although the activity may seem straightforward, the final amount can be affected by the timing of the request, applicable NAV, exit load and capital-gains tax. Processing timelines may also vary depending on the type of scheme.
Understanding mutual fund redemption can help investors avoid delays, unexpected deductions or rushed decisions when the money is required.
Table of Contents
What is mutual fund redemption?
Mutual fund redemption means withdrawing part or all of an investment by returning units to the fund house. The AMC cancels the redeemed units and transfers the proceeds to the investor’s registered bank account.
Investors can request redemption by specifying an amount or a number of units they wish to withdraw. For an amount-based request, the applicable NAV determines how many units are cancelled. For a unit-based request, the applicable NAV determines the redemption value. The exit load (if any) is deducted from the redemption proceeds, and the payout is generally credited within a few working days, depending on the scheme.
A redemption may trigger capital gains tax. The rate depends on the type of scheme and the holding period and has to be paid at the end of the financial year.
The applicable NAV depends on when a valid redemption request is received by the fund house or at an official point of acceptance.
Mutual fund redemption time and applicable NAV
The mutual fund redemption time involves two stages: determining the applicable NAV and transferring the proceeds:
NAV cut-off time for redemption
For most mutual fund schemes, the applicable NAV is determined as follows:
| Scheme and request time | Applicable NAV |
| Schemes other than liquid and overnight funds, valid request received by 3 p.m. on a business day | Closing NAV of the same business day |
| Schemes other than liquid and overnight funds, request received after 3 p.m. or on a non-business day | Closing NAV of the next business day |
| Liquid and overnight funds, valid request received by 3 p.m. on a business day | Closing NAV of the same day* |
| Overnight funds, online request received by 7 p.m. on a business day | Closing NAV of the same day* |
| Liquid funds after 3 p.m. and overnight funds after the applicable cut-off | NAV of the next business day |
*If a weekend or holiday falls before the next business day, liquid and overnight funds use the NAV of the calendar day immediately before that next business day. For example, a valid request submitted on Friday before the cut-off may receive Sunday’s NAV if Monday is the next business day.
Different rules may apply to international schemes and transactions in mutual fund units conducted through a recognised stock exchange. Investors should check the Scheme Information Document for scheme-specific terms.
Source: SEBI Master Circular for Mutual Funds, dated March 20, 2026.
What are the types of redemption?
Mutual fund redemption can take different forms depending on how an investor chooses to withdraw their investment.
- Full redemption: Investors redeem all units held in a specific mutual fund scheme. This results in complete liquidation of the investment in that fund.
- Partial redemption: Investors withdraw only a portion of their holdings, either by specifying a number of units or a monetary amount. This approach offers flexibility, allowing access to required funds while keeping the remaining investment intact.
- Systematic Withdrawal Plan (SWP): An SWP lets you withdraw money from a mutual fund at regular intervals, such as every month or quarter. Each withdrawal is treated as a partial redemption and may attract exit load and capital-gains tax.
- Redemption due to scheme maturity: Close-ended funds have a fixed maturity date. Upon maturity, the fund house automatically redeems all investor units and credits the proceeds to the registered bank account.
How to redeem mutual funds
Mutual fund units can generally be redeemed online or by submitting a physical request:
How to redeem a mutual fund online
Mutual funds can be redeemed online with a few simple steps:
- Log in to the website of the AMC, a registrar and transfer agent, or the authorised investment platform through which the folio can be accessed.
- Select the mutual fund scheme and choose the redemption option.
- Enter the amount or number of units to be redeemed, or select full redemption.
- Verify the registered bank account and complete any required authentication.
- Submit the request and save the transaction reference for tracking.
How to redeem mutual funds offline
The offline process is also relatively straightforward:
- Obtain the redemption form from the AMC or its registrar and transfer agent.
- Enter the folio number, scheme name and the amount or number of units to be redeemed.
- Sign the form according to the mode of holding recorded in the folio.
- Submit it at an official point of acceptance and retain the acknowledgement.
Time taken to receive redemption proceeds
SEBI prescribes the following payout timelines after a valid redemption request:
- Up to three working days for most mutual fund schemes.
- Up to five working days for schemes investing at least 80% of their assets in permitted overseas investments.
Additional time may apply in exceptional circumstances prescribed by AMFI in consultation with SEBI.
Source: SEBI Master Circular for Mutual Funds, dated March 20, 2026.
Things to remember before redeeming mutual funds
A few checks before submitting the request can help avoid processing issues or unintended costs:
- Confirm whether you need a partial or full redemption based on your financial requirement.
- Check for any lock-in period or exit load applicable to the units.
- Review the NAV cut-off time, particularly when submitting the request close to 3 p.m.
- Consider the capital-gains tax implications based on the scheme and holding period.
- Make sure the bank account registered with the folio is active and correctly recorded.
- Avoid redeeming only in response to short-term market movements without considering your original investment goal.
Is mutual fund withdrawal different from selling stocks?
Mutual fund redemption is a transaction with the fund house, while selling stocks involves trading with other investors in the stock market. Here’s a look at the differences:
- Buyer: Mutual funds are redeemed with the fund house, while stocks are sold to other market participants.
- Pricing: Mutual funds are priced based on the end-of-day NAV, whereas stock prices depend on the real-time market value.
Charges and taxes on mutual fund redemption
The amount received after redemption may be affected by exit load and capital-gains tax:
Exit load
An exit load is a fee that may apply when units are redeemed within a period specified by the scheme. It is calculated as a percentage of the applicable redemption value and deducted from the proceeds.
The rate and applicable period vary across schemes. Some schemes have no exit load, while others may apply different rates depending on how long the units were held. Investors should check the latest Scheme Information Document before redeeming.
Tax on mutual fund redemption
Tax applies to the capital gain, not the entire redemption amount. The treatment depends on the type of scheme, holding period and dates of purchase and redemption.
For eligible equity-oriented mutual fund units held for up to 12 months, short-term capital gains are taxed at 20%. Units held for more than 12 months qualify as long-term capital assets, and eligible long-term capital gains exceeding the aggregate annual threshold of ₹1.25 lakh are taxed at 12.5%.
For debt funds, the capital gains are taxed as per the investor’s tax slab, regardless of the holding period.
Applicable surcharge and health and education cess may be additional.
The tax information in this article is based on prevailing laws at the time of publishing the article and is subject to change. Please consult a tax professional or refer to the latest regulations for up-to-date information.
Also read: LTCG Tax on Mutual Funds in 2026: What Has Changed and What You Must Know
When should you consider redeeming your fund units?
A redemption decision is generally better linked to financial requirements and portfolio needs than short-term market movements:
- Fulfilling financial objectives: Investors may redeem their units to access funds for specific goals, such as a child’s education, home purchase, or retirement planning.
- Handling urgent expenses: Unforeseen financial situations, like medical emergencies, might require immediate liquidity through mutual fund redemption.
- Booking potential profits: When investments, especially in equity-focused funds, appreciate in value, investors may redeem units to realise potential gains.
- Adjusting asset allocation: Redemption can be a strategy to rebalance a portfolio, ensuring investments align with risk tolerance and financial objectives by shifting between asset classes.
- Responding to fund performance: If a fund persistently underperforms its benchmark or comparable funds, investors might opt to move their money to funds with relatively stronger performance.
Short-term underperformance alone may not be enough reason to redeem. Investors should examine the period, benchmark, market conditions and the scheme’s investment mandate.
Past performance may or may not be sustained in future.
Conclusion
Mutual fund redemption allows investors to withdraw part or all of their investment. Before submitting a request, check the applicable NAV cut-off, exit load, tax treatment, lock-in conditions and registered bank details.
The redemption decision should reflect the investor’s financial requirement, goals and portfolio plan rather than short-term market movements.
FAQs
Are there charges for redeeming mutual funds?
An exit load may apply if units are redeemed within the period specified by the scheme. Capital-gains tax may also apply, but it is a tax obligation rather than a redemption charge.
How long does mutual fund redemption take?
Most mutual fund schemes must transfer redemption proceeds within three working days of a valid request. The limit is five working days for schemes investing at least 80% of their assets in permitted overseas investments, subject to prescribed exceptions.
What are the tax implications of mutual fund redemption?
Tax applies to the capital gain arising from redemption. The rate depends on the scheme classification, holding period and dates of purchase and redemption; for eligible equity-oriented funds, the current rates are 20% for short-term gains and 12.5% for qualifying long-term gains above the ₹1.25 lakh aggregate annual threshold.
When is a suitable time to redeem mutual funds?
Redemption may be considered when a financial goal is due, funds are needed, the portfolio requires rebalancing or the scheme no longer matches the investor’s objective. Short-term market movements alone may not provide enough basis for a redemption decision.
Is there a lock-in period for mutual fund redemption?
Most open-ended mutual funds do not have a lock-in period. Some schemes do, such as ELSS, where each investment is locked in for three years, while close-ended schemes are generally not redeemable with the AMC before maturity.
Can I redeem only part of my mutual fund investment?
Yes. Investors can usually request a partial redemption by specifying an amount or number of units, subject to the scheme’s minimum redemption and balance requirements.
What is the cut-off time for mutual fund redemption?
For most schemes, a valid redemption request received by 3 p.m. on a business day receives that day’s closing NAV. Requests received after 3 p.m. receive the next business day’s NAV, while liquid and overnight funds follow different rules.
What is the latest rule for mutual fund redemption?
The latest material cut-off change allows online redemption requests in overnight mutual fund schemes to be submitted until 7 p.m. for the NAV of the day immediately preceding the next business day. Other redemption modes for overnight funds and redemptions from liquid funds generally retain the 3 p.m. cut-off.
Source: SEBI circular on overnight-scheme redemption cut-offs, dated April 22, 2025.
Is a minimum balance required after partial redemption?
There is no single minimum-balance rule across all mutual funds. The minimum redemption amount and any required remaining balance are specified by each scheme, so investors should check its current transaction terms
